Yuan strengthens to one-week high after China’s central bank acts on lending
The People’s Bank of China has restricted some lending activities by banks in Shanghai’s free-trade zone, according to a report, its latest attempt to calm nerves over the currency
China’s yuan rose to a one-week high on Friday, helped by a report that the central bank had restricted some forms of lending in its latest effort to calm nerves over the currency, which has lost 10 per cent against the US dollar since a peak in March.
The Shanghai branch of the People’s Bank of China (PBOC) banned banks in its free-trade zones from certain lending activities, Reuters reported, citing two sources. The restrictions closed off channels used to deposit and lend yuan offshore through interbank accounts that are managed by Chinese banks in the pilot free-trade zone in Shanghai, the report said.
The onshore yuan, traded on the mainland, rose 0.12 per cent Friday afternoon to 6.8770 per dollar, and heading for its strongest close since August 10. Offshore yuan, traded by international investors outside China, was little changed at 6.8619 after yesterday’s surge.
The latest PBOC guidance was aimed at offshore trading desks, while the central bank has refrained from intervening in the currency market directly.
“A fast depreciation is not desired by the PBOC,” said Alicia Garcia Herrero, the chief economist for Asia-Pacific at Natixis. “Considering that China still holds massive foreign reserves and has a very tight command of the banking sector, it should be possible for the monetary authority to redirect the yuan in its desired direction.”
Pressure from the US-China trade war and more recently from the Turkey lira crisis, which has weighed on the emerging-market asset class, have combined to put pressure on the yuan, pushing the PBOC to act.